The Magazine

Permanent Energy Crisis

And the solution we keep ignoring.

Mar 17, 2003, Vol. 8, No. 26 • By WILLIAM TUCKER
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NO SUBJECT gets talked to death more than "diminishing our dependence on Middle Eastern oil." Yet as conflict with Iraq looms, what do we face but another Energy Crisis?

Between January and late February, the price of a barrel of oil rose from $32 to $40, highest since the first Gulf War. With war near, speculators are bidding up futures. An extremely cold winter in the United States and Europe hasn't helped. (Where is global warming when we need it?) World supplies are reeling from the meltdown of Venezuela, which provides 4 percent of global oil and 14 percent of our imports. A year ago Venezuela was producing 2.4 million barrels per day. By December it had fallen to 150,000. We've made up for the loss by increasing imports from--you guessed it--the Middle East.

Higher petroleum prices have spilled over into natural gas markets. Future contracts crept from $2 to $6 per million BTUs in 2002, then spiked at $10 in late February. Storage levels have declined 40 percent. In Texas, shortages have curtailed several electrical plants.

Over the last decade, natural gas has become everybody's favorite fuel--the supposed answer to all our energy and environmental problems. California, frantically building power stations after the 2000 debacle, now gets 45 percent of its electricity from natural gas. Nationwide, the figure is only 15 percent, but 91 percent of new plants are burning methane (the principal component of natural gas). The 14 percent of natural gas used to generate electricity now approaches the 22 percent used for home heating.

All this has brought hosannas from environmentalists. The Sierra Club has issued a "national energy plan" urging conversion to methane. It even supports a natural gas pipeline from Alaska to California. The Bush administration is also touting the project, but construction is ten years away.

Now suddenly we're back in a situation of scarcity. What happened? At bottom, shortsighted policies--driven by environmental extremism--have time and again pushed us down the path of least resistance, and lower energy supplies.

For decades, natural gas was considered too valuable to burn in electrical generators. Coal (50 percent of our electricity) and nuclear (20 percent) were deemed more appropriate. With environmentalists fighting both coal and nuclear, however, gas became the "clean" alternative. A glut from the 1980s deregulation made this seem feasible, but the outlook for the long run is not so bright: While environmentalists love burning gas, they sure don't like drilling for it.

"Most of the new wells we're punching are in the same places we've drilled for the past 100 years," says Rhone Resch, vice president of the Natural Gas Supply Association. "Our decline rate [the annual decrease in production from existing wells] used to be 25 percent. Now it's 50 percent. Basically, we keep sipping through the same straw."

Huge regions of promise--the coast of California, the eastern Gulf of Mexico, about 40 percent of the Rockies--have been closed by environmental restrictions. Even where permits are granted, environmentalists automatically oppose them. "These are public lands," says Peter Morton, of the Wilderness Society's Denver office. "You have to balance other uses and values. It comes with the territory."

"In recent years we've developed new technology for extracting methane from coal beds," says Resch. "It's very pure gas. We were extracting large amounts from coalfields in Wyoming. But environmentalists intervened, saying the original environmental impact statement didn't cover the new technology. We had to close down, putting a lot of people out of business."

"This is an industry of small operators," says Jeff Eschelman, of the Independent Petroleum Association of America. "Our members average 12 employees but drill 85 percent of new wells and produce 70 percent of the nation's natural gas. These people can't handle a lot of litigation."

Instead, increased consumption has been met by imports, mainly from Canada. But even where Canadian supplies are available, local environmental opposition makes delivery difficult. Since 1998 Columbia Gas Transmission has been trying to build a pipeline from Ontario to metropolitan New York. Opposition in Westchester County has blocked the project--even as the same people try to shut down that county's Indian Point Nuclear Station. This month electrical boilers in New York started switching back to oil because gas had become too expensive.